Greg Robb interviewed me on Friday evening, October 9, and by the next morning had this incisive article out. You should read the entire article, but here is the part based on our interview:
Although negative rates have a “Dr. Strangelove” feel, pushing rates into negative territory works in many ways just like a regular decline in interest rates that we’re all used to, said Miles Kimball, an economics professor at the University of Michigan and an advocate of negative rates.
But to get a big impact of negative rates, a country would have to cut rates on paper currency, he pointed out, and this would take some getting used to.
For instance, $100 in the bank would be worth only $98 after a certain period.
Because of this controversial feature, the Fed is not likely to be the first country that tries negative rates in a major way, Kimball said.
But the benefits are tantalizing, especially given the low productivity growth path facing the U.S.
With negative rates, “aggregate demand is no longer scarce,” Kimball said.
Here is a quotation I sent him over email he didn’t have space to use:
Monetary policy can’t take care of long-run growth or financial stability. But, even if we had to face again something as terrible as the Great Recession, interest rate policy alone–without any help from quantitative easing or fiscal stimulus–could provide as much aggregate demand as needed once a central bank gets cash out of the way. And it is easy to get cash out of the way by adjusting how the central bank handles paper currency. The key is to make dollars (or euro or yen) in the bank the center of the monetary system, not paper money.
For more on negative interest rates, see my bibliographic post How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide. There is a 5 minute video there you should watch first, then you can browse through many links.